Higher aspirations: an agenda for reforming European universities

EUROPEAN UNIVERSITIES UNIVERSITY FUNDING
Comparing these facts with the results in terms of research performance indicates
that there are several ‘successful models’ in Europe. One can be successful without
having significant fees, as the Nordic countries and Switzerland indicate, or with fees,
as the UK indicates. Our Policy Brief shows, however, that higher budgets do
significantly help research performance. This means that, if funding does not come
from fees, it must come from other sources, in particular public funds. Universities
cannot rely on very sizeable amounts of money from ‘market-oriented activities’ such
as spin-offs, or from endowments, which in any case take time to build up. While
these sources of income should be encouraged, as a first approximation budgets are
in general determined by fee income and public funding.
There is also the question of how public money is awarded. A detailed discussion of
this important issue is beyond the scope of this paper. But it is worth stressing the
importance of ‘competitive research grants’ in university budgets. Ensuring meritocratic
distribution of such grants is a key to research success. There has been much
innovation in recent years on this front (eg the UK Research Assessment Exercises,
among others), with a general trend towards stricter evaluation. This is a welcome
development. Let us simply stress three elements:
1. First, in order to raise the efficiency of the research allocation process, it is desirable
gradually to raise the amount of money distributed as a result of EU-wide
competition, and not just as a result of national or regional competition.
2. Second, one should bear in mind that universities are ‘multi-task organisations’,
involved in teaching, research and ‘service to society’. As is well known from
incentive theory (eg Holmstrom and Milgrom, 1991), increasing incentives for
one task can be expected to raise effort devoted to that task but also to divert it
from other tasks. One should therefore ensure a balance in terms of incentives
provided to education systems in general (this does not mean that individuals
cannot ‘self-select’ and focus on specific tasks). This means for example that the
provision by the higher education system of stronger incentives for quality
research should be accompanied by stronger incentives for quality teaching. And
the same is true for the relationship between the university and its faculty:
institutions should bear in mind that incentives should also be provided for ‘service
to society’ and for managing the organisation, otherwise these two tasks will
be neglected in favour of pursuing scientific publications and/or good student
evaluations 25 .
25. See Dewatripont et al. (2001, 2002) for analyses of these issues.
32